Second Edition OUTSOURCING HUMAN RESOURCES FUNCTIONS HOW, WHY, WHEN, AND WHEN NOT TO CONTRACT FOR HR SERVICES MARY F. COOK and SCOTT B. GILDNER Society for Human Resource Management Alexandria, Virginia USA www.shrm.org
Contents Preface Acknowledgments Introduction IX XI XIII PART I Identifying Critical Outsourcing Issues, Making the Decision, and Establishing a Plan Chapter 1 Chapter 2 Chapter 3 What Is HR Outsourcing? Why Outsource? - 3 Advantages and Disadvantages of HR Outsourcing 7 Alternatives for Outsourcing 8 What HR Functions Should or Should Not Be Outsourced? 10 The Outsourcing Life Cycle 13 Making an Outsourcing Decision Understanding the Nature of the Decision 15 Visioning 16 Defining the Scope of Services for Consideration 17 Calculating Baseline Costs 18 Identifying Strategic Alternatives 21 Modeling the Alternatives. 23 Considering Nonfinancial Justifications for Outsourcing 25 Building Your Presentation to Management 26 Managing Expectations 27 Establishing an Outsourcing Plan Setting Organizational Goals and Reaching Consensus 29 Establishing a Timeline 30 Selecting the Vendor 32 Negotiating a Good Contract 36 Communicating the Decision 37 Building a Rollout Schedule 37 Managing the Ongoing Relationship 38
PART II Chapter 4 Defining Your Requirements, Selecting a Provider, and Communicating the Decision Defining Your Requirements The Service Delivery Model Performance Penalties and Incentives Service Level Agreement Framework Sample Service Level Agreement Chapter 5 Identifying and Prequalifying Vendors Identifying Types of Outsourcing Vendors Probing Vendor Solutions Identifying Potential Providers Researching Providers on the Internet Prequalifying Potential Providers Using a Request for Information Chapter 6 Chapter 7 Preparing and Analyzing a Request for Proposals Establishing Your Selection Criteria Handling Fees in the Selection Criteria Structuring the Request for Proposals Integrating Your Vendor Selection and Contracting Processes Probing for Vendor Capabilities Requesting Fee Proposals Satisfying Internal Sourcing Requirements Distributing the Request for Proposals Supporting the Vendors as They Develop Their Reponses Using Technology to Simplify the Process Analyzing the Request for Proposals, Selecting Finalists, and Making a Decision Summarizing and Analyzing the Vendor Proposals Analyzing Fee Proposals Selecting Finalists Refining Your Selection Criteria Performing Due Diligence Identifying Your Preferred Provider Negotiating the Best Deal for Your Organization II I Outsourcing HR Functions
Chapter 8 Communicating the Decision Taking a Strategic Approach to Outsourcing Communications 77 Communicating the Positives and the Negatives 78 Using a "Five Ws" Approach to Communications 80 Identifying the Methods of Communication 80 Considering Three Communications Scenario 81 Planning for Communications 82 PART III Outsourcing Specific Functions and Processes Chapter 9 Outsourcing Workforce Administration Definition of Workforce Administration 88 Prevalence of Outsourcing 88 Marketplace Alternatives 88 The Right Strategy for Your Organization 90 Key Considerations 90 Services to Outsource in Conjunction with Workforce Administration 92 The Future of Human Resource Information Systems 92 Chapter 10 Outsourcing Benefits Administration Definition of Benefits Administration 96 ; Prevalence of Outsourcing 97 Marketplace Alternatives 97 The Right Strategy for Your Organization 98 Key Considerations 99 - Services to Outsource in Conjunction with Benefits Administration 99 The Future of Outsourced Benefits Administration 101 Chapter 11 Outsourcing Payroll Administration Definition of Payroll Administration 104 Prevalence of Payroll Outsourcing 104 Marketplace Alternatives 105 i The Right Strategy for Your Organization 106 Key Considerations, 107 ;-. Services to Outsource in Conjunction with Payroll Administration 107 The Future of Outsourced Payroll Administration 108
Chapter 12 Outsourcing Recruiting and Staffing Prevalence of Outsourcing ' 112 Marketplace Alternatives 112 The Right Strategy for Your Organization 113 Key Considerations 115 Services to Outsource in Conjunction with Recruiting and Staffing Administration 115 The Future of Outsourced Recruiting and Staffing Administration 115 Chapter 13 Outsourcing Compensation Administration Prevalence of Outsourcing 118 Marketplace Alternatives 118 The Right Strategy for Your Organization 119 Key Considerations 120 Services to Outsource in Conjunction with Compensation Administration 120 The Future of Outsourced Compensation Administration 121 Chapter 14 Outsourcing Talent Development Administration Definition of Talent Development 124 Prevalence of Outsourcing 124 Marketplace Alternatives 125 The Right Strategy for Your Organization 126 Key Considerations 126 Services to Outsource in Conjunction with Talent Development 127 The Future of Outsourced Talent Development Administration 128 Chapter 15 Outsourcing Subprocesses Candidates for Outsourcing 130 Strategic Considerations 131 Domestic Relocation or Global Mobility 131 Expatriate Administration 132 COBRA Administration 133 Flexible Spending Account Administration 134 Pension Payroll Administration 135 The Future of Subprocess Outsourcing 136
PART IV Managing Human Resources Outsourcing Chapter 16 Managing the Outsourcing Relationship Defining Success 139 Avoiding Common Mistakes 141 Establishing a Measurement Framework 143 Identifying Appropriate Metrics 145 Designing Performance Reports 147 Chapter 17 Writing an Administrative Services Agreement Deciding Which Form to Use 149 Organizing Attachments 150 Examining the Overview of Common Agreement Provisions 150 Negotiating Process and Strategy 153 Designing Termination for'convenience, Expiration, and Renewal Considerations 155 Chapter 18 Managing a Proactive Governance Function Establishing a Governance Structure 157 Establishing the Role of the Steering Committee 158 Building a Vendor Management Team 160 Monitoring Vendor Performance 162 Managing Change Order Activity 164 Benchmarking Services and Fees 167 Reviewing and Renewing Providers 168 Chapter 19 Resolving Disputes and Terminating Vendor Contracts Handling Escalated Case Management 171 Fixing Problems 172 Using the Seven Steps Model 173 Terminating an Outsourcing Contract,174 Bringing Services Back in House 176 PART V Considering Global Issues Chapter 20 Incorporating Global Requirements Examining Human Resources as a Multilocal Phenomenon 181 i
vi I Outsourcing HR Functions Understanding Legislative Challenges Looking at Variations by Geographic Regions Knowing Vendor Capabilities Developing a Global Delivery Strategy Seeing What Lies Ahead Chapter 21 Offshoring and Near-Shoring Labor Arbitrage Other Factors Offshoring in Human Resources Future of OfFshoring Effect of Outsourcing on Vendor Management 182 183 185 186 188 192 192 194 194 196 PART VI Hiring an Outsourcing Consultant and Monitoring Services and Trends Chapter 22 Hiring a Consultant Learning Why and When You May Need Help Finding Outsourcing Consultants Hiring the Right Consultant for Your Needs Examining a Sample Consulting Contract Chapter 23 Seeing Trends and the Future of Outsourcing Learning What Lies Ahead Anticipating Trends Appendix: Abbreviations and Acronyms Index About the Authors 203 204 208 210 211 212 215 221 231 CD-ROM Contents Abbreviations and Acronyms Used in HR Outsourcing Glossary of Human Resource and Outsourcing Terms Sample Request for Information (RIF) Sample Overview to a Request for Proposals (RFP) Sample Administrative Services Agreement Sample Consulting Services Agreement